Samsung to invest $7bn in China memory chip factory

Samsung is keen to tap into the growing demand for smartphones and tablet computers in China

Samsung Electronics, the world's biggest memory chip maker, has unveiled plans to invest $7bn (£4.4bn) to build its first chip factory in China.

Samsung will initially invest $2.3bn in the plant, which will make chips for smartphones, tablets and MP3 players, and increase its investment gradually.

The firm has been looking to tap into the lucrative Chinese market, but there have been fears of technology leaks.

Samsung won government approval to build the plant earlier this year.

In an emailed statement to the BBC, Samsung said the new facility would help it "rapidly respond to meet the fast-growing demand from customers and further strengthen competitiveness in the memory industry".

The plant is expected to start production by the end of 2013.

'Perfect sense'

Over the years, China has become a leading manufacturing hub for consumer electronics.

Contract manufacturers such as Foxconn, have been making gadgets ranging from smartphones to tablet PCs for leading global brands.

Many of these products use memory chips manufactured by Samsung. Analysts said having a production facility in China would help Samsung to further strengthen its position with its customers.

"Inventory cycles are very short for electronics manufacturers," Tim Charlton of Charlton Media Group told the BBC. "You need to be close to your customers for inventory and delivery reasons."

He explained that being in China would help Samsung take out extra layers of transport and storage and ensure speedier deliveries to its clients.

"It makes perfect sense for them."

Domestic demand

Along with becoming a global electronics manufacturing hub, China has also seen a rise in domestic demand for consumer electronics.

China's economic growth over the last few years has seen income levels rise in the country, giving more disposable cash to its consumers.

That has turned China into one of the biggest and fastest growing markets for high tech gadgets.

Domestic demand in China is likely to grow even further in the coming years, which analysts say will result in higher demand for memory chips.

They say Samsung's decision to open a production facility in the country will help it tap into the growing market and maintain an edge over its competitors.